A single organisation can benefit by more effectively managing enterprise-wide activities, but blockchain’s value multiplies when more players — even an entire industry — participate. Blockchain requires the creation of new industry ecosystems, in which participants must work together.
Bringing together a group of stakeholders to collectively agree on a set of standards that will define the business model is perhaps the biggest challenge in blockchain. Participants have to decide the rules for participation, how to ensure that costs and benefits are fairly shared, what risk and control framework can be used to address the shared architecture, and what governance mechanisms are in place, including continuous auditing and validation, to ensure that the blockchain functions as designed.
Start with smaller ecosystems with a tradition of cooperating on matters of industry-wide importance. It’s also possible to build a blockchain that starts with just a few stakeholders but is ready to expand.
Blockchain consortia are valuable resources for staying close to technology developments, but you can look to established industry groups or trade organisations to find a community for exploring industry applications.
Conduct a competitive analysis: Are competitors or new entrants already planning on using blockchain? Is there a potential for partnership? Will you have to participate in their blockchain solution in order to continue doing business?
The key to the solution is both competitors’ participation and trust — trust that the encryption and access do not expose competitively “sensitive” information.
In one aerospace use case currently in discussion, airframers; aircraft manufacturers; maintenance, repair and overhaul providers; and airlines have all come to the table to create a blockchain for aircraft parts provenance. Each has a vested interest in maximising both aircraft safety and the aircraft’s operational availability. Specifically, the blockchain solution provides data for the life of the aircraft — parts provenance and as-flown aircraft configurations (the sum of the provenance of all parts on a plane) — as well as the certifications for the personnel maintaining the plane.
The ultimate value of the solution is its ability to maintain data across industry participants for the 30-year life of an aircraft. The innate attributes of blockchain enable competitors’ data to co-exist in a shared ledger with encrypted access that prevents one participant from leveraging its competitors’ data for its own advantage. The key to the solution is both competitors’ participation (in the form of providing data) and trust — trust that the encryption and access do not expose competitively “sensitive” information.
Another example in which companies have united around a critical problem involves food safety. Multiple scandals ranging from rebottled beer to synthetic rice have resulted in widespread food distrust among Chinese consumers. In response, a group of industry leaders including a giant e-commerce player, international nutrition brands and logistics companies came together to tackle this question: how can technology be used to build trust in the food supply chain? These companies are using blockchain technology to enable enhanced traceability to help mitigate counterfeit and fraudulent food products.
There are technical challenges when creating an ecosystem: 28% of respondents say interoperability is a key ingredient for a successful blockchain. If different participants will be entering data and transactions into the blockchain, that data has to be standardised and its governance must be robust. Standard naming conventions and system-wide data models, for example, have to be developed that all parties will adhere to.
Moreover, 40% of respondents specifically called out “scalability” as necessary for a successful blockchain project. When it comes to supply chain tracking and tracing, for example, scalability won’t be an issue that a single company can solve; it’s an issue that a group of companies can best address by bringing together their collective capabilities and power. Significant scalability concerns also relate to the technology itself. This is a critical area to monitor, and one that continues to evolve rapidly. For example, a significant number of ICOs have been launched by startups that are developing or making use of more scalable blockchain infrastructures.
What it takes to build your blockchain
Blockchain leaders and consortia engagement
There are several different owner/operator models that determine how critical decisions are made. In a sponsor-led model, one company is the “owner” of the blockchain. This company determines costs, benefits and buildout considerations, and charges services to other participants in the network. The owner also determines standards to which shared ecosystem participants have to adhere, and can license the software to other market participants. This model works best for very large players that can effectively “make the market.”
Other companies may find it more practical to be a co-owner/co-operator, sharing responsibility for costs, benefits, and buildout and standards with other companies. And one highly effective way to do this is to be a founding member of an industry consortium or utility, influencing a market utility entity responsible for the blockchain infrastructure. Of the 15% of our survey respondents who already have live applications, a startling 88% were either leaders or active members of consortia.
In pharmaceuticals, for example, there’s the MediLedger Project, driven by the requirements of the US Drug Supply Chain Security Act, which mandates full interoperability by 2023. For food products, there’s the Blockchain Food Safety Alliance. And in the freight industry, there’s the Blockchain in Transportation Alliance, which is focused on standards and education.
Companies that take a leadership role in a consortium would have principal funding and control considerations, including intellectual property ownership. They would also have considerable influence over shared-services development where cost and benefit are mutualised among participants, and they could expand the base for commercial gain.
Regardless of the model selected, when determining the number of participants for the blockchain, the imperative is once again to start small. In the pharma industry, for example, there’s often significant rebate and chargeback activity because drug pricing information is out of sync among manufacturers, wholesalers and retailers that serve end customers. It’s a complex environment, with a considerable amount of data to maintain: contract pricing details, rebate information, membership eligibility and more. This presents a compelling business case for manufacturers, wholesalers and retailers to use blockchain to manage the pricing and contracting process in order to reduce transaction time and cost and to increase transparency.
To make progress, a nascent industry effort has begun with a single manufacturer and a few distributors. Together, this pilot group will define the blockchain’s operating rules and consider how to develop the incentives for future participants. The idea is to start small, with players that would both benefit through engaging in the conception and creation of an ecosystem and be able to influence their peers to join later.
The idea is to start small, with players that would both benefit through engaging in the conception and creation of an ecosystem and be able to influence their peers to join later.